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Too Big to Fail: Is Bank of America on Death Watch?

(List compiled by Alexander Crawford. Institutional data sourced from Fidelity, all other data sourced from Finviz)

Bank of America is beginning a series of “non-core asset” sales in an effort to improve its balance sheet, but hedge fund managers and the broader market continue to be pessimistic – is BAC on death watch?

Year-to-date, BAC has lost over 40% of its value in the stock market. According to Naked Capitalism, the bank is “is in the weird position of having potentially a long term solvency problem without immediate liquidity pressures.”

The blog claims that after the crisis and regulatory forbearance, “BofA didn’t take aggressive enough action, either on boosting its equity or shrinking its balance sheet, when times were better.”

Last week, CEO Brian Moynihan said the bank did not need additional new capital and rejected the idea of selling new equity because it would be highly dilutive at current prices. Instead, the bank has decided to sell certain assets, including its Canadian cards business to TD Bank for about $8.5 billion. The bank has also pledged to sell its larger UK and Irish cards portfolios.

BAC is also looking to sell its 10% stake in China Construction Bank, but there appear to be no buyers.

Several large hedge fund managers have been dumping Bank of America stock. According to Reuters, “John Paulson, Dinakar Singh and David Tepper were heavy sellers of Bank of America in the second quarter, eliminating or cutting their exposure before the financial giant's recent woes.”

With so many banks in trouble, which banks are being bought up by hedge funds? Here is a list of banking stocks seeing significant net institutional buying over the current quarter.

1. First Republic Bank (FRC): Money Center Banks Industry. Market cap of $3.36B. Net institutional shares purchased over the current quarter at 3.1M, which is 6.37% of the company's 48.67M share float. The stock is currently stuck in a downtrend, trading 6.14% below its SMA20, 14.75% below its SMA50, and 13.94% below its SMA200. The stock has performed poorly over the last month, losing 12.42%.

2. KeyCorp (KEY): Money Center Banks Industry. Market cap of $6.49B. Net institutional shares purchased over the current quarter at 22.3M, which is 2.35% of the company's 949.92M share float. Might be undervalued at current levels, with a PEG ratio at 0.83, and P/FCF ratio at 2.87. The stock is currently stuck in a downtrend, trading 13.44% below its SMA20, 16.71% below its SMA50, and 21.9% below its SMA200. The stock has performed poorly over the last month, losing 14.12%.

3. Wells Fargo & Company (WFC): Money Center Banks Industry. Market cap of $132.10B. Net institutional shares purchased over the current quarter at 87.4M, which is 1.77% of the company's 4.93B share float. Might be undervalued at current levels, with a PEG ratio at 0.75, and P/FCF ratio at 4.73. The stock is currently stuck in a downtrend, trading 8.15% below its SMA20, 9% below its SMA50, and 16.14% below its SMA200. The stock has had a couple of great days, gaining 9.11% over the last week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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